Trend watch
The weekly air passenger count ebbed compared to last week’s record of 19.7 million, but at 19.3 million – it exceeds the prior record. Moreover, it doesn’t include today (July 3rd), which is likely to be a very heavy day, approaching 3 million, which has never happened.
Otherwise, many of the activity-based indicators (slides 5 and 6) will see another ripple due to Independence Day holiday, though many are still recovering following the Juneteenth holiday two weeks ago.
What’s new this week
- Purchasing managers index (PMI): Mixed view continues (slide 7).
- Job openings and hiring up in May, while quit rate steady at prior trend (slide 8).
- Retail sales improving compared to 2023, but some consumers appear to be trading down for bargains (slide 9).
Our take
It’s a holiday shortened week for economic data with the most important release, the monthly jobs report, coming on Friday. Nonetheless, the data we received was decidedly mixed. For instance, job openings and hiring were up in May. The weekly retail sales figures also showed promise.
Yet, the PMIs were literally all over the place. First, a quick primer. There are two surveys – one for manufacturing and another for services – from two different sources: one from the Institute for Supply Management (ISM) and another from S&P Global (SPG). Although the surveys are comprehensive and meaningful, the industry weightings vary, which results in different exposure to exports and imports, among other variations. Suffice it to say, the SPG indices are more U.S.-oriented than the ISM versions. However, the ISM data series have a much longer track record, with the ISM manufacturing survey reaching back to the 1950s, making it helpful to see how the sector reacted during many prior business cycles.
Thus, the four series reveal unique but nuanced insights on broad swaths of the economy. Yet, these series often give differing views of what is occurring in different parts of the economy and the world.
Given their heavier U.S. orientation, we tend to consider the SPG series a more accurate reflection of conditions in the U.S. Accordingly, we are encouraged by the recent progress. For instance, the SPG Services Index jumped to a 26-month high in June and expanded for the 17th straight month. And that’s very important since services account for roughly 45% of the overall U.S. economy.
Still, we can’t dismiss the contraction signal by the ISM Services Index. Eight of 18 industries reported growth in June, down sharply from 13 during May. Although to be fair, this series has see-sawed back and forth between expansion and contraction for the past seven months, while the broader economy has remained quite resilient.
Ultimately, we need either more data from these series (e.g., a few more months) or further confirmation from other data. In other words, we must suffer through the crosscurrents. One source will be Friday’s jobs report, which provides an excellent industry-level view of employment.
Bottom line
We maintain our view that the U.S. economy is cooling but not weak. That keeps the Fed in a holding pattern for the next several months, awaiting more cooling by inflation data. Thus, we maintain our belief that progress on inflation should allow for at least one rate cut before the end of the year.
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